Japan floods money markets with cash

Japan?s central bank is injecting a record 15 trillion yen into money markets to stabilise the financial system after a devastating earthquake and tsunami.

14 March 2011

Nikkei

The Bank of Japan is pumping a record $15 trillion yen ($182 billion) into the money markets and may ease its ultra-loose policy further to calm markets after Friday's devastating earthquake that killed thousands and triggered a nuclear crisis.

Sources familiar with the matter told Reuters the central bank would discuss policy easing at its meeting that got under way on Monday amid news of another explosion at one of the country's nuclear reactors.

The central bank's policy board will likely discuss whether the sharp 6 per cent fall in Tokyo stock prices and the potential damage from the quake to corporate profits warrant an immediate policy response, the sources said.

But whether it will actually ease policy is uncertain as Governor Masaaki Shirakawa likely did not have enough time to gain consensus within the board for any immediate action.

Damage estimates also remain sketchy. Many factories have been forced to shut in the area due to power outages, while others have reported flooding or quake damage.

If the BoJ were to act, the most likely step would be to expand its 5-trillion-yen pool of funds, put in place last year to buy assets ranging from government bonds to private debt.

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But some analysts say the BOJ may go even further, given the escalating damage of the quake.

"The BOJ is likely to take bold steps to stabilise the financial system and is likely to revert to quantitative easing or zero interest rate policy to respond to the unprecedented crisis," said Naomi Hasegawa, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

"If it were not for the earthquake, the BOJ's next step would have been to increase its asset buying programme. But doing so this time is likely to disappoint markets."

Tokyo's stocks plunged as much as 6 per cent after the market reopened today as investors tried to gauge the huge economic cost of Friday's quake and tsunami wiped out whole villages and towns and likely killed more than 10,000 people.

Moody's ratings agency said it saw no major disruption to Japan's payment system but that the economic fallout from the disaster appeared greater than initially expected, even though it was still waiting for a full assessment of the damage.

"The economic consequences appear to be greater than we perhaps originally expected on Friday," Tom Byrne, Moody's senior vice president, said in an interview.

The BoJ offered a total of 15 trillion yen, well above the usual 1-2 trillion, this morning to assure investors that markets will function properly.

"The move is aimed at stabilising financial markets and ensuring smooth fund settlement," a BoJ official said.

The BoJ is expected to keep its benchmark rate in the 0-0.1 per cent range.

Analysts said the massive fund injections showed the central bank's determination to keep borrowing costs low and stable as investors try to gauge the economic cost of the worst crisis to hit Japan since World War II.

"The BoJ apparently is making utmost efforts to maintain order in markets with ample fund supply," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute in Tokyo.

"The BOJ may ease policy by expanding its asset-buying fund or some other measures in the near future."

Japan is battling to prevent a nuclear catastrophe and to care for millions of people without power or water, just as a new wave of water was heading towards Japan's north-east coast and a hydrogen explosion rocked an earthquake-stricken nuclear plant 240 km north north of Tokyo.

The BoJ said in a statement that there were no reports so far of system glitches or funding problems at Japanese financial institutions, including those in the quake-struck region.

Reuters

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